Underground Economy as Adaptation

Posted by jofr

Wikipedia says that underground economy refers to “both legal activities, such as often found in construction and services industries where taxes are not withheld and paid, and illegal activities, such as drug dealing and prostitution”. Like corruption and terror, it can be considered as a form of adaptation, too. We have argued earlier that terror is an adaptation to the tyranny of selfish global superpowers, while corruption is an adaptation to institutional weakness. In Afghanistan we have both: terror and corruption. And an active underground economy based on opium production.

An underground economy is an adaptation to a weak economy, to a place at the edge of economy where it starts to fail. Underground economy – including black markets, prostitution and drug dealing – is an adaptation to failure of the economy to cover basic needs of the population. It comes into play if there is a strong demand for a certain good, but no official or legal supplier.

An underground economy can be the result or unintended consequence of a prohibition or ban. In this case, the demand growths endlessly, while the supply is officially zero. The prohibition of alcohol in the United States is an example. Prostitution and drug dealing are two examples where there is a never ending demand. They reflect people’s basic need for sex and drugs.

Drug dealing is an area which is not well covered by the global economy. It does not allow the production of drugs, and it prohibits their trade for good reasons. There would be even a bigger problem if more people could afford to buy drugs. It is not uncommon for children of stars and rich people to have a drug problem. The main consumers can be found where the economy is strong – among the winners of capitalism, the rich people. The main producers can be found where the economy is weak – among the losers of capitalism, the poor people. A successful drug market can of course turn the drug consumers into poor losers, and the drug producers into rich winners. However, all this takes place at the edge of society and economy.

The result is the emergence of an underground economy to service the rich where the global economy is really weak: in places like Afghanistan. In this poorly developed region, the drug market is nearly the only source of economic growth. It is one of the few sources of economic activity and prosperity in an otherwise barren wilderness. And it is the source of many other problems, because it is also a major source of funding for the Taliban and local drug lords. The modern Taliban act like a private army for a kind of drug cartel. In a shadow economy, cartels take the place of organizations and companies. Afghanistan is poor, there are no resources, no attractions for tourists, no possibilities to escape poverty – except drugs. Penalties for possession, use, production or trade of illegal drugs are low in Afghanistan. Even if they were higher, the state and the police are weak. The government does not even manage to get rid of the opium fields. Therefore the drug market is a key problem in Afghanistan. There will be no peace until this problem is solved. It is a global problem which cannot be solved because the origin lies deep in the western culture itself: the demand for drugs among the rich and famous. Even if the drug market is completely banned from Afghanistan, it will pop up in another poorly developed country – for instance Yemen or Somalia.

Update (Mar. 2010): A recent TIME article named Afghanistan’s Fix confirms the ideas in this post. It claims that some southwestern Afghan regions have the world’s highest concentration of opium production, and argues that the opium trade is deeply woven into the fabric of the (underground) economy of southern Afghanistan. Opium is the economic mainstay for many regions in Afghanistan, providing a livelihood for thousands of families, the drug lords, and the Taliban. The whole economy is based on opium production. It is organized by the drug syndicates, which are protected by the Taliban, and supplied by nearly 70,000 farmers and their families. Last year the Taliban reaped nearly $300 million from the drug trade. Where else can you earn millions of dollars in this barren country where there is nothing but dust, rubble and meager mountains. Destroy the poppy fields, and suddenly the whole country is against you, because you have destroyed the main source of income for everyone: all the local farmers, the drug lords and the Taliban. They all depend on the poppy fields, and all of them would be unemployed and jobless without them. There is no easy solution for this problem.